(Reuters) - Tempur-Pedic International Inc (>> Tempur-Pedic International Inc.) will acquire rival Sealy Corp (>> Sealy Corporation) for about $242 million and assume about $750 million in debt, as the once-dominant specialty mattress maker seeks to fend off rivals by broadening its product range.

Tempur Pedic, which pioneered the specialty beds market with foam-based technology developed by NASA, is attempting to regain market share from fast-moving rivals in the burgeoning market for foam mattresses, popular with aging baby boomers.

The company's market value halved to about $1.5 billion after it slashed full-year forecasts in June, blaming rising competition from privately owned manufacturers such as Simmons Bedding Co and Serta Inc.

Sealy, the long-time industry leader, will give Tempur-Pedic expertise in traditional inner-spring coil beds and brands including Sealy Posturepedic and Stearns & Foster.

The combined company will have a presence in more than 80 countries in every product category, Tempur-Pedic said.

The offer price of $2.20 per share represents a 3 percent premium to Sealy's Wednesday close of $2.14. Sealy shares were trading above the offer price at $2.26 on Thursday, indicating that some investors expect a higher offer.

Tempur-Pedic shares were up 22 percent at $32.73.

Tempur-Pedic said it had received consent from shareholders holding about 51 percent of Sealy, which was founded in 1881 in the Texas town of the same name. It said no other shareholder approvals are needed to complete the deal.

Private equity firm Kohlberg Kravis Roberts & Co (>> KKR & Co. L.P.) owns about 44 percent of Sealy, a remnant of its $1.5 billion deal in 2004 to take the company private.

Earlier this year, Sealy's second-largest shareholder, H Partners, launched an attack on KKR accusing it of wiping out 90 percent of the mattress maker's value since it went public in 2006, saddling it with debt and milking it for fees.

Tempur-Pedic said it had secured $1.77 billion in financing from Bank of America for the deal and to pay down existing Sealy and Tempur-Pedic debt. Tempur-Pedic had long-term debt of $680 million as of June 30.

Merrill Lynch will act as lead arranger and bookrunning manager for the debt.

After the deal, Tempur-Pedic and Sealy will continue to operate independently and Sealy Chief Executive Larry Rogers will remain CEO of Sealy and report to Mark Sarvary, Tempur-Pedic's CEO.

(Reporting by Juhi Arora and Arpita Mukherjee in Bangalore; Editing by Akshay Lodaya, Anthony Kurian and Ted Kerr)